The Inflation Reduction Act includes incentives for taxpayers to take certain increased credit amounts or an increased deduction if they satisfy prevailing wage and apprenticeship requirements. The prevailing wage and apprenticeship requirements are deemed satisfied if construction begins before the date that is 60 days after the publication of guidance (November 30, 2022).
Accordingly, if construction begins on or after January 29, 2023, prevailing wage and apprenticeship requirements must be satisfied in order to qualify for the increased credit and deduction amounts.
How do I know if I am paying prevailing wages?
Prevailing wages are currently determined by the Department of Labor (DOL) under the Davis Bacon Act for construction of Federal buildings. The IRS guidance refers taxpayers to a DOL website at www.sam.gov to determine prevailing wages based on location and activity.
Prevailing wages requirements apply to laborers and mechanics during construction and with respect to repair and maintenance for a period after property is placed in service. Separate prevailing wages must be used in the case of a laborer or mechanic that performs functions as determined by the DOL.
The prevailing wage requirement applies to the taxpayer’s employees and independent contractors, as well as the employees and subcontractors of any contractor.
What are the apprenticeship requirements?
A percentage (12.5% in 2023, increasing to 15% thereafter) of labor hours must be performed by apprentices obtained through a registered apprenticeship program. However, a good faith safe harbor may excuse the taxpayer from satisfying the apprenticeship requirement if it attempts to hire apprentices but none are available.
When does construction begin?
Construction will be considered to begin when either 1) physical work of a significant nature has occurred or 2) five percent (5%) of the total cost of the facility has been paid or incurred. In either case, the taxpayer must make continuous efforts toward completion. In most cases, completion within four years will be considered to satisfy the continuous effort requirement.
What kind of records will I need to keep?
Records should be kept identifying the applicable wage determined, as well as: the laborers and mechanics who performed construction work on the facility, the classifications of work they performed, their hours worked in each classification, and the wage rates paid for the work.
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This article is provided for general informational purposes only. It is not legal, accounting or other professional advice, as it does not address any individual facts, circumstances or concerns. Before making personal or business related decisions, please consult with appropriate legal, accounting or other qualified professionals.
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